There is so much bad investing advice out there. As wonderful as the Internet has been for the free-flowing exchange of ideas, information, and transparency when it comes to securities trading, there has been an equally poor effect on those who don't really understand investing…
There is so much bad investing advice out there.
As wonderful as the Internet has been for the free-flowing exchange of ideas, information, and transparency when it comes to securities trading, there has been an equally poor effect on those who don’t really understand investing but seek knowledge.
Consider the trendy and “woke” concept known as “impact investing.”
“Impact investing” is a term manufactured by the Global Impact Investing Network, a nonprofit organization with some 280 members across 41 countries.
Founded in 2009, the GIIN was created to generate so-called “impact investments” into companies with the intention to “generate measurable, beneficial societal and environmental impact, alongside a financial return.”
“Impact investing” is obviously perfect for those “woke” Millennials who have bought into the elitist propaganda that a company’s fiduciary duty to shareholders should be subordinated to social impact nonsense.
Everyone just wants to feel good about themselves. They should call “impact investing” something like “virtue signaling investing.”
According to a recent survey by Fidelity Charitable, the nation’s largest grantmaker, 77% of Millennials have made an impact investment. That shows just how popular this concept is with that demographic.
Yet financial advisors seem to have caught on to the fact that “impact investing” doesn’t really have a clearly defined set of rules. That may be why Fidelity Charitable says only 53% of financial advisors say they understand the topic well.
In other words, three-quarters of Millennial investors are clamoring to make “impact investments,” yet only half of the financial advisors out there even know what their clients are talking about. It also helps explain why Millennials don’t know how to buy stocks.
This makes perfect sense if one thinks about it.
How exactly do you measure the beneficial societal impact that a company has? How do you measure its environmental impact?
This first requires that one define terms like “environmental, and “societal.” What exactly does this mean? What is considered a positive or negative impact? How do you balance one against the other?
Take the classic collision of the logging industry versus environmentalists who want to save the forests.
The timber industry needs to cut down trees in order to generate products from those raw materials. Certainly, it is a positive societal impact by creating jobs for those in the timber industry. It also has the ancillary effects of creating jobs in the community and helping the economy for all the machinery involved in that work.
Removing excess timber from certain areas prone to wildfires may also be a positive action for the environment.
Environmentalists, however, would say just the opposite. They would say that destroying any trees for a greedy corporation to make money would be a bad environmental impact. Yet, they would ignore that this would create a negative societal impact because those timber industry jobs wouldn’t exist.
So are timber industry companies good or evil? Do they provide a positive or negative impact on society and the environment?
Now extend that to every kind of company and industry in existence. How on earth does one make an “impact investment” when these terms are not only not clearly defined, but probably are made up from a bunch of arbitrary rules?
Even if one manages to decide whether an impact is positive or negative, how is that impact measured? What of the units of measurement? Is it the number of jobs lost? The number of acres of trees cut down? The amount of paper that is produced from trees, reduced by the amount of non-recycled toilet paper?
No wonder the advisors have no idea what their clients are talking about.
This is just one of the many problems when it comes to this type of “socially responsible investing,” which was the term coined 20 years ago before the hot new term of “impact investing” appeared on the scene.
This is just the tip of the iceberg. None of this even addresses some of the problems that I wrote about the other day.
I mentioned a new ETF that supposedly invests in companies that eschew certain behaviors as part of their business.
This ETF said it doesn’t want to invest in any company that has to do with the military or defense. Yet the fund’s top holding is Microsoft, and I’m willing to bet that the entire defense and military infrastructure uses Microsoft products.
So when it comes to “impact investing,” if a woke Millennial invests in a company that meets his impact standards, is he even aware that that company might engage in activities that don’t meet his impact standards in other ways?
And what about all the individuals who work at the company he has invested in? For all he knows, the majority of people who work at that company drive home in vehicles powered by fossil fuels, to homes that have no solar power, where they never recycle, and burn charcoal on their barbecue, while basting their non-ethically slaughtered meat with sauce containing corn syrup.
You can give this type of investing any name. You can pretend that you’re making a difference in the world, but at the end of the day, it’s all nonsense.
Behind it all are the funds who want to collect investor fees in exchange for making investments that make clients feel good.
That is not the proper way to invest in the stock market and grow wealth over the long term.
This article was edited by Josiah Wilmoth.
Last modified: January 10, 2020 3:11 PM UTC